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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2013
Stock-Based Compensation

12:STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to key employees and non‑employee directors based on their contributions to the successful management of the company.  The PISP has a five-year term, expiring in May 2014. 

All grants under the PISP for 2013, 2012, and 2011 were in the form of TSR restricted stock and time-lapse restricted stock.  Of the restricted stock awards granted to officers in 2013 and 2012, 75 percent were TSR restricted stock and 25 percent were time-lapse restricted stock.  Restricted stock award recipients receive shares of CMS Energy common stock that have dividend and voting rights.  In lieu of cash dividend payments, however, the TSR restricted stock shares receive additional restricted shares equal to the value of the dividend.  These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

TSR restricted stock vesting is contingent on meeting a three-year service requirement and a specific market condition.  The market condition is based entirely on a comparison of CMS Energy’s TSR with the median TSR of a peer group over the same three-year period.  Depending on the outcome of the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant.  Time-lapse restricted stock vests after a service period of three years.

All restricted stock awards vest fully upon death.  Upon a change of control of CMS Energy or termination under an officer separation agreement, restricted stock awards will vest in accordance with specific officer agreements.  For restricted stock award recipients who terminate employment due to retirement or disability, a pro-rata portion of the award equal to the portion of the service period served between the award grant date and the employee’s termination date will vest upon termination with any TSR award also contingent upon the outcome of the market condition.  The remaining portion of the award will be forfeited.  Restricted shares are forfeited fully if employment terminates for any other reason or if the minimum service requirements are not met or waived.

The PISP also allows for stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2013, 2012, or 2011.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009 through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year.  CMS Energy and Consumers may issue awards of up to 2,068,751 shares of common stock under the PISP at December 31, 2013.  Shares for which payment or exercise is in cash, as well as shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or granted again under the PISP.

Presented in the following table is restricted stock activity under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

Number of Shares 

Weighted-Average Grant Date 
Fair Value per Share 

 

CMS Energy, including Consumers

 

 

 

 

 

Nonvested at beginning of period
1,654,776 

 

$
19.15 

 

Granted1
920,587 

 

 
16.65 

 

Vested
(927,164)

 

 
10.85 

 

Forfeited
(22,343)

 

 
22.33 

 

Nonvested at end of period
1,625,856 

 

$
22.42 

 

Consumers

 

 

 

 

 

Nonvested at beginning of period
1,547,123 

 

$
19.22 

 

Granted1
879,150 

 

 
16.76 

 

Vested
(841,728)

 

 
10.84 

 

Forfeited
(22,343)

 

 
22.33 

 

Nonvested at end of period
1,562,202 

 

$
22.31 

 

 

1

During 2013, CMS Energy granted 326,518 TSR shares, 271,250 time-lapse shares, 45,486 shares from dividends paid on TSR shares, and 277,333 shares granted as a result of the outcome of the TSR awards’ market condition.  During 2013, Consumers granted 310,454 TSR shares, 264,283 time-lapse shares, 43,450 shares from dividends paid on TSR shares, and 260,963 shares granted as a result of the outcome of the TSR awards’ market condition.

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period.  TSR restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period.  Expense for TSR restricted stock awards for non-retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period. 

The fair value of time-lapse restricted stock is based on the price of CMS Energy’s common stock on the grant date.  The fair value of TSR restricted stock awards is calculated on the grant date using a Monte Carlo simulation.  CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock.  The risk-free rate for valuation of the TSR restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date. 

Presented in the following table are the significant assumptions used to estimate the fair value of the TSR restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
2013 

 
2012 

 
2011 

 

 

Expected volatility

 
17.4 

%

 
20.3 

%

 
29.6 

%

 

Expected dividend yield

 
3.9 

 

 
4.1 

 

 
4.6 

 

 

Risk-free rate

 
0.4 

 

 
0.3 

 

 
1.0 

 

 

 

Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2013 
2012 
2011 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
16.65 

 

$
12.32 

 

$
13.89 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
16.76 

 

$
12.28 

 

$
14.17 

 

 

Presented in the following table are amounts related to all restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Millions  

Years Ended December 31
2013 
2012 
2011 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
10 

 

$
10 

 

$
7 

 

Compensation expense recognized

 

 
14 

 

 
12 

 

 
10 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
4 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
9 

 

$
8 

 

$
7 

 

Compensation expense recognized

 

 
14 

 

 
11 

 

 
10 

 

Income tax benefit recognized

 

 
5 

 

 
4 

 

 
4 

 

 

At December 31, 2013, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $10 million of total unrecognized compensation cost was related to restricted stock for Consumers.  CMS Energy and Consumers expect to recognize this cost over a weighted-average period of 1.8 years.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon vesting of restricted stock.  Therefore, CMS Energy did not recognize the related excess tax benefits in equity.  As of December 31, 2013, CMS Energy has $58 million of unrealized excess tax benefits.

Consumers Energy Company [Member]
  
Stock-Based Compensation

12:STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to key employees and non‑employee directors based on their contributions to the successful management of the company.  The PISP has a five-year term, expiring in May 2014. 

All grants under the PISP for 2013, 2012, and 2011 were in the form of TSR restricted stock and time-lapse restricted stock.  Of the restricted stock awards granted to officers in 2013 and 2012, 75 percent were TSR restricted stock and 25 percent were time-lapse restricted stock.  Restricted stock award recipients receive shares of CMS Energy common stock that have dividend and voting rights.  In lieu of cash dividend payments, however, the TSR restricted stock shares receive additional restricted shares equal to the value of the dividend.  These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

TSR restricted stock vesting is contingent on meeting a three-year service requirement and a specific market condition.  The market condition is based entirely on a comparison of CMS Energy’s TSR with the median TSR of a peer group over the same three-year period.  Depending on the outcome of the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant.  Time-lapse restricted stock vests after a service period of three years.

All restricted stock awards vest fully upon death.  Upon a change of control of CMS Energy or termination under an officer separation agreement, restricted stock awards will vest in accordance with specific officer agreements.  For restricted stock award recipients who terminate employment due to retirement or disability, a pro-rata portion of the award equal to the portion of the service period served between the award grant date and the employee’s termination date will vest upon termination with any TSR award also contingent upon the outcome of the market condition.  The remaining portion of the award will be forfeited.  Restricted shares are forfeited fully if employment terminates for any other reason or if the minimum service requirements are not met or waived.

The PISP also allows for stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2013, 2012, or 2011.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009 through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year.  CMS Energy and Consumers may issue awards of up to 2,068,751 shares of common stock under the PISP at December 31, 2013.  Shares for which payment or exercise is in cash, as well as shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or granted again under the PISP.

Presented in the following table is restricted stock activity under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

Number of Shares 

Weighted-Average Grant Date 
Fair Value per Share 

 

CMS Energy, including Consumers

 

 

 

 

 

Nonvested at beginning of period
1,654,776 

 

$
19.15 

 

Granted1
920,587 

 

 
16.65 

 

Vested
(927,164)

 

 
10.85 

 

Forfeited
(22,343)

 

 
22.33 

 

Nonvested at end of period
1,625,856 

 

$
22.42 

 

Consumers

 

 

 

 

 

Nonvested at beginning of period
1,547,123 

 

$
19.22 

 

Granted1
879,150 

 

 
16.76 

 

Vested
(841,728)

 

 
10.84 

 

Forfeited
(22,343)

 

 
22.33 

 

Nonvested at end of period
1,562,202 

 

$
22.31 

 

 

1

During 2013, CMS Energy granted 326,518 TSR shares, 271,250 time-lapse shares, 45,486 shares from dividends paid on TSR shares, and 277,333 shares granted as a result of the outcome of the TSR awards’ market condition.  During 2013, Consumers granted 310,454 TSR shares, 264,283 time-lapse shares, 43,450 shares from dividends paid on TSR shares, and 260,963 shares granted as a result of the outcome of the TSR awards’ market condition.

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period.  TSR restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period.  Expense for TSR restricted stock awards for non-retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period. 

The fair value of time-lapse restricted stock is based on the price of CMS Energy’s common stock on the grant date.  The fair value of TSR restricted stock awards is calculated on the grant date using a Monte Carlo simulation.  CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock.  The risk-free rate for valuation of the TSR restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date. 

Presented in the following table are the significant assumptions used to estimate the fair value of the TSR restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
2013 

 
2012 

 
2011 

 

 

Expected volatility

 
17.4 

%

 
20.3 

%

 
29.6 

%

 

Expected dividend yield

 
3.9 

 

 
4.1 

 

 
4.6 

 

 

Risk-free rate

 
0.4 

 

 
0.3 

 

 
1.0 

 

 

 

Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2013 
2012 
2011 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
16.65 

 

$
12.32 

 

$
13.89 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
16.76 

 

$
12.28 

 

$
14.17 

 

 

Presented in the following table are amounts related to all restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Millions  

Years Ended December 31
2013 
2012 
2011 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
10 

 

$
10 

 

$
7 

 

Compensation expense recognized

 

 
14 

 

 
12 

 

 
10 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
4 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
9 

 

$
8 

 

$
7 

 

Compensation expense recognized

 

 
14 

 

 
11 

 

 
10 

 

Income tax benefit recognized

 

 
5 

 

 
4 

 

 
4 

 

 

At December 31, 2013, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $10 million of total unrecognized compensation cost was related to restricted stock for Consumers.  CMS Energy and Consumers expect to recognize this cost over a weighted-average period of 1.8 years.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon vesting of restricted stock.  Therefore, CMS Energy did not recognize the related excess tax benefits in equity.  As of December 31, 2013, CMS Energy has $58 million of unrealized excess tax benefits.